The building industry is cutting costs and shedding jobs amid pred­ictions that construction in Australia faces permanent structural change caused by the strong local dollar and a greater number of apartment ­developments.

Boral
announced on Wednesday that it will cut more than 700 local managerial and back office employees over the next two months, becoming the latest building materials ­company to “right-size" its workforce to reflect a lower level of building activity and a high Australian dollar.

“The reality is Boral cannot ­continue to sustain the overhead structure that has built up over time and has burdened the group, and become increasingly evident at the bottom of the cycle," said Boral chief executive Mike Kane.

More than 60,000 jobs were lost in 2012 with more expected as Boral joined Adelaide Brighton, CSR and Brickworks to cut production in some divisions as the number of new domestic and commercial building projects remains subdued.

The chief executive of industrial manufacturer
Hills Holdings
, Ted Pretty, said the structure of the manufacturing market had permanently changed. Hills announced in October last year that it would accelerate its cost-cutting program across its manufacturing divisions, which makes steel roofing and tubing.

“Anyone who thinks building approvals will get an uptick and that it will all be the same as it was seven years ago, I don’t subscribe to that view," Mr Pretty said. “The market and its structure have changed. It is more competitive, therefore business models have to change."

Sustained downturn

Brickworks
chief executive Lindsay Partridge told The Australian Financial Review building companies were preparing for a sustained downturn. “I don’t think we’re going to see any 180,000 to 190,000 housing starts anytime soon. My general feeling is the entire industry is scaling down to around 160,000 [housing] starts at a peak," he said. “Our shareholders want returns and we’ve got to make money on the right level of capacity to meet the market demand That’s what’s caused all this incredible restructuring over the past 18 months across the industry."

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Australian Bureau of Statistics figures show Australian housing starts are averaging 138,000 on seasonally adjusted annualised basis. The long-term average is around 155,000. Housing starts reached a 12-year high of 174,800 starts in March 2003.

Boral will update the market on its strategy on February 13. The Sydney company recently announced it was closing its sole Victorian-based clinker manufacturing facility at Waurn Ponds. Boral says the high Australian dollar means it is cheaper to import the product, which is a key component in cement making.

Australian Workers Union head
Paul Howes
said the union was preparing for a very poor manufacturing market. “From Boral today to BlueScope, it is a pretty dire warning about what the year is going to be like for manufacturing," he said.

Acting Minister for Employment and Workplace Relations
Kate Ellis
said the government would work with Boral and the unions to ensure workers’ entitlements were honoured.

Opposition spokeswoman on industry, innovation and science
Sophie Mirabella
blamed the Gillard government for the job losses. “Labor’s deliberate policies of more red tape, higher taxes and increased business burdens have slugged manufacturing businesses like Boral, making it more difficult for them to remain competitive," she said.

Call to stimulate building

Approximately 300 more employees across the group will be let go when outsourcing and rationalisation programs are also included.The Australian Industry Group and Housing Industry Association Performance in Construction Index found the overall building industry has been contracting for 31 consecutive months. With contraction in the construction sector now extending over 31 months, industry bodies are calling for increases to first-home owner grants for new dwellings and other incentives to stimulate building

Master Builders Australia chief economist Peter Jones said the building industry was in “survival mode", with parts of the residential and non-residential sectors “on their knees" because of sharply falling profits.

Mr Jones said builders had ­nothing to replenish empty order books after the federal government’s economic stimulus programs finished, those these temporarily cushioned a downturn in areas such as commercial building after the global financial crisis.

“We need a restoration in confidence. We need short-term stimulus measures, not only to stop the red ink in the building industry," he said, “but to take out insurance for the ­general economy to sow seeds for revival in non-mining sectors as we lose mining’s contribution."

But the executive director of the Australian Construction Industry Forum, Peter Barda, took a more positive view to the building materials companies, arguing that confidence was the main challenge. He said this lack of confidence among buyers was at odds with strong economic fundamentals, low interest rates and solid demand for homes.

Indirect taxation including the GST, stamp duty, infrastructure charges and zoning was absorbing 40 per cent of purchase price for new dwellings, Mr Goodwin said. The HIA also says tight lending practices for developers and purchasers was dampening demand and stifling the production of new stock which was in turn contributing to housing affordability problems.

Some are optimistic

“There is strong demand for housing. We just need to reform inefficient taxes and improve lending practices," Mr Goodwin said.

Mirvac’s apartments and commercial head, John Carfi, said that while building approvals for detached houses grew by less than 1 per cent, those for medium-density housing increased by 36 per cent.

“While conditions remain challenging across the country, there are clear signs of an improvement, particularly towards medium-density accommodation. We expect residential markets with exposure to metropolitan outer-growth corridors to be more challenged," he said.